Transaction trends The Official Publication of the Electronic Transactions Association
| January/February 2014
Playbook for the
future How industry veterans are adapting to the times
ALSO INSIDE: ETA Tech Roundtable Recap: Loyalty and M-Commerce The Power of Big Data in Portfolio Management
Merchant Name
Home
Merchant Apps
My Merchants
My Residuals
dd/mm/yyyy
Reports
ISO Profile
Applications Submitted Select a merchant to perform the operation Criteria From : dd/mm/yyyy
To : dd/mm/yyyy View | Print | Export
300 merchant/s found dba
mid
statusdescription
merchant a merchant b merchant c merchant a merchant b merchant c
a0123456789 a4563908885 34567892121 a0123456789 a4563908885 34567892121
Approve Pending Approve Approve Pending Approve
Mobile and Real Time Solutions Keeping up with technology these days is the key to growth and success for any company. Customers desire mobile and real time solutions. The days of signing merchant applications and offices filled with paper filled filing cabinets are becoming a part of the past. Our partners can access information through smartphones and tablets working together for consumers. C&H Financial Services offers multiple solutions: Online Reporting Management System o Secure Online Portal for both merchants and our partners o Detailed reporting information which includes real time information o Emails and text message alerts confirming account activity and deposits o Custom price any merchant from industry type, SIC code, risk and geographic location CRM o Track your growth with real time dashboards o Respond to leads, log calls, track growth o Boost sales productivity anytime from any device Mobile Marketing o Send to thousands of customers instantly at the exact moment you want o Blast text messages such as coupons, events, sales updates and much more o Build landing pages for tablets in minutes o Manage your own mobile app and website
C&H Financial Services, Inc. is a registered ISO of BMO Harris Bank N.A. Chicago, IL
Merchant Name
Home
Merchant Apps
My Merchants
My Residuals
dd/mm/yyyy
Reports
ISO Profile
Applications Submitted Select a merchant to perform the operation Criteria From : dd/mm/yyyy
To : dd/mm/yyyy View | Print | Export
300 merchant/s found dba
mid
statusdescription
merchant a merchant b merchant c merchant a merchant b merchant c
a0123456789 a4563908885 34567892121 a0123456789 a4563908885 34567892121
Approve Pending Approve Approve Pending Approve
Contact Our Marketing Representatif, Jennifer Stadler Director of Business Development Ph. 1-855-600-2437 x 808 E. jstadler@chfs.us
1110 W. Kettleman Lane. Suite 48 Lodi, CA 95240 | www.chfs.us
Transaction trends The Official Publication of the Electronic Transactions Association
Vol. 19 | No. 1
cover story
10 Playbook for the Future By John Manasso Staying ahead of the curve in the payments industry this year will require both continuing education and aggressive networking. Learn how veterans from across the industry are positioning their organizations—and themselves—for future success.
10
FEATURES 14 Putting the “L” in M-Commerce
Participants in the ETA Technology Committee roundtable event in Scottsdale, Arizona, share their insights on merchant adoption, consumer enrollment, and the impact of social media companies on the loyalty space.
21 S PE C I A L S E R I E S Startup Stories: Click and Buy
By John Manasso @Pay’s innovative online checkout system allows consumers to make purchases through email—quickly and securely. 14
6
depar tmentS 4
ETA Gateway
Insights from ETA’s CEO, Jason Oxman
6
Industry News
8
Future of the Business
Trends, strategies, and news in the payments business and ETA member community
23 Ad Index 24 The Last Word
NEW!
Key takeaways concerning government affairs and ETA advocacy efforts
Big Data is providing new depths of information to merchant acquirers. Transaction trends | January/February 2014 3
ETA Gateway
Introducing TRANSACT: Powered by ETA
E
TA has owned and produced the world’s largest payments industry trade show for more than 20 years—2014 will be our 24th year, to be precise. More payments industry business gets done during our show than any other place on earth. Now, we are thrilled and proud to announce the re-branding and re-energizing of the ETA show as “TRANSACT: Powered by ETA.” I know what you’re thinking. Trade shows come and go all the time; new shows are launched and sold; they change ownership and location—why is re-naming a show such a big deal? So let’s talk about what led us to launch “TRANSACT” as our new show name. For ETA, the re-branding of our signature annual event is about more than just a catchy new name. It’s a
Editorial Policy: The Electronic Transactions Association, founded in 1990, is a not-for-profit organization representing entities who provide transaction services between merchants and settlement banks and others involved in the electronic transactions industry. Our purpose is to provide leadership in the industry through education, advocacy, and the exchange of information. The magazine acts as a moderator without approving, disapproving, or guaranteeing the validity or accuracy of any data, claim, or opinion appearing under a byline or obtained or quoted from an acknowledged source. The opinions expressed do not necessarily reflect the official view of the Electronic Transactions Association. Also, appearance of advertisements and new product or service information does not constitute an endorsement of products or services featured by the Association. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided and disseminated with the understanding that the publisher is not engaged in rendering legal or other professional services. If legal advice and other expert assistance are required, the services of a competent professional should be sought. Transaction Trends (ISSN 1939-1595) is the official publication, published eight times annually, of the Electronic Transactions Association, 1101 16th St. N.W., Suite 402, Washington, DC 20036; 800/695-5509 or 202/828-2635; 202/828-2639 fax. POSTMASTER: Send address changes to the address noted above. Copyright © 2014 The Electronic Transactions Association. All Rights Reserved, including World Rights and Electronic Rights. No part of this publication may be reproduced without permission from the publisher, nor may any part of this publication be reproduced, stored in a retrieval system, or copied by mechanical photocopying, recording, or other means, now or hereafter invented, without permission of the publisher.
4 January/February 2014 | Transaction trends
reflection of who we are as an industry, and where we are going. TRANSACT is in ETA’s name—we are the Electronic Transactions Association, after all—and it is in our DNA. ETA has experienced explosive growth in the past year as our membership has expanded to more than 550 global technology companies. ETA represents the nation’s largest and most successful ISOs, acquirers, processors, and financial institutions, as well as the nation’s largest mobile network operators, technology companies, equipment manufacturers, security providers, and apps companies. TRANSACT is where the world’s top payments and technology companies come together in one place, over three days, to do business. A nd as our association has grown, so too have our annual events. In 2013, our annual trade show (formerly called the ETA Annual Meeting and Expo) and our executive forum (the ETA Strategic Leadership Forum) hit all-time attendance,
exhibitor, and square footage records. Our attendees are payments companies and technology companies—and we operate at the intersection of payments and commerce, so we needed a show name that better reflects what is happening at our show. Why are all these companies coming together through ETA? To TRANSACT. And so at TRANSACT 14: Powered by ETA, which runs April 8-10, 2014, at the Mandalay Bay Convention Center in Las Vegas, some 4,000 executives will gather to TRANSACT business. We can’t wait to see you there at the greatest payments technology show on earth. For more information about TRANSACT or to register today, visit www.transact14.com.
Kind Regards, Jason Oxman Chief Executive Officer Electronic Transactions Association
Electronic Transactions Association 1101 16th Street NW, Suite 402 Washington, DC 20036 202/828.2635 www.electran.org ETA CEO Jason Oxman COO Pamela Furneaux Director, Education and Professional Development Rori Ferensic Director, Membership and Marketing Del Baker Robertson Director, Communications Meghan Cieslak Publishing office: Stratton Publishing & Marketing Inc. 5285 Shawnee Road, Suite 510 Alexandria, VA 22312 703/914.9200; fax 703/914.6777 Subscriptions: 202/677.7411
Publisher Debra Stratton Associate Publisher & Editor Josephine Rossi Managing Editor Lia Dangelico Editorial/Production Associate Christine Umbrell Art Director Janelle Welch Contributing Writers Meghan Cieslak, Lia Dangelico, Jaime Graham, John Manasso, and Mike Strawhecker Advertising Sales Linda Baker Advertising Sales Manager Phone: 703-964-1240, ext. 13 Fax: 866-466-9187 Lbaker@conferencemanagers.com
INDuSTRYnews fast FACT
The global mobile wallet market is expected to reach $5.25 trillion in 2020—128 percent growth from 2013, according to Allied Market Research. Mobile Spending to Exceed $700 Billion by 2018 Annual retail payments on mobile handsets and tablets worldwide are expected to reach $707 billion by 2018, representing 30 percent of all e-retail at that time, according to a new report from Juniper Research. In 2012, mobile spending totaled $182 billion—15 percent of total e-retail for the year. Demonstrating this continued growth, 2013 “Cyber Monday” sales totaled nearly $400 million in the U.S. alone.
China Working to Overhaul E-Commerce Laws E-commerce in China continues to climb as the country grows increasingly more open to cross-border commerce, with transaction value totaling more than $1.32 trillion in 2012, according to the China E-Commerce Research Center. At a recent meeting of Chinese economic and financial leaders, officials announced a plan to overhaul the country’s e-commerce regulations and charged a work group with drafting a new, comprehensive e-commerce law. The group must
info GRAPH ‘Showrooming’ Not Driving Online Sales Growth Shoppers who made their last purchase online 2014
2013
27% 14%
Percent of online purchases that resulted from showrooming 2014
2013
30% 50%
Note: 2014 numbers were collected in late 2013; 2013 numbers were collected in late 2012. “Showrooming” refers to the practice of browsing goods at a store, but ultimately buying them online. Source: IBM
6 January/February 2014 | Transaction trends
present a research report on its progress by the end of 2014 and develop working regulations by June 2016. These efforts follow other regulatory strides in China. In October 2013, the top legislative body strengthened consumer protection rights by revising an existing law to better empower consumers, add projections for the ecommerce sector, and mandate harsher punishments for businesses that mislead consumers.
AROUND THE HORN Boku is partnering with SingTel to launch carrier billing in Singapore. Clearent announced Jason Hubbard is now vice president of business development, ISO sales. CSR announced it was issued a patent for its CSR Breach Reporting ToolKit system. EVO Payments International has acquired the Encore Group. Harbortouch was named a winner in two cate-
News from the association
ETA Increasing Capitol Hill Activity Following Data Breaches at Target, Others ETA has issued the following statement to members and partners in the electronic payments community: In light of ongoing news reports about large data breaches of major retailers, including Target, Neiman Marcus, and others, ETA has ramped up its industry education activities on Capitol Hill. ETA continues to assure legislators about the importance of the industry. This is a critical time. Public trust in the electronics payments industry is extremely high, and has continued to trend upward as the industry has innovated and grown. Safety and security of consumer information has been a foundation of that trust. When breaches occur, the industry responds and we are making sure that Congress and the public understand our commitment to protecting consumer data. As a valued ETA partner and Voice of Payments supporter, rest assured that your voice is being heard on Capitol Hill. ETA is in regular communication with oversight committees and congressional offices in the
ETA Introduces “TRANSACT 14: Powered by ETA”
House and Senate, and also is spreading the industry message via traditional and social media channels. At any time, we may be calling on you and your employees to help us amplify the industry voice.We ask that you keep a vigilant eye for ETA and Voice of Payments communications over the coming days and weeks, and that you be ready to help in the effort. If you have any questions about this issue or The Voice of Payments, please contact Jaime Graham of ETA at jgraham@ electran.org.
ETA announced the re-branding and expansion of its signature ETA Annual Meeting and Expo as “TRANSACT: Powered by ETA.” TRANSACT 14 is the platform for 4,000 attendees in the payments technology and retail industries to do business with payments industry titans and innovative technology companies.TRANSACT 14 will take place April 8-10, 2014, at the Mandalay Bay in Las Vegas. For more information, or to register, go to www.transact14.com.
CALENDAR: New Members ETA is pleased to welcome the following companies to its membership.
To inquire about a membership with ETA, please contact Del Baker Robertson, director of membership and marketing, at dbaker@electran.org. Fulton Financial Corp. Lancaster, PA www.fult.com
RS2 Software Gzira, Malta www.rs2.com
Red Oak Payment Solutions Alpharetta, GA www.redoakps.com
The Funding Tree LLC Virginia Gardens, FL www.thefundingtreeus.com
gories from the 2013 Best in Biz Awards. Merchant Warehouse announced a partnership with CGS to deliver a more cost-effective, secure credit card processing solution, and announced the addition of Christopher Wuhrer as senior vice president, strategic initiatives and product marketing. Payment Alliance International is helping River City Bank expand with branded ATMs at Louisville area Rite Aid stores. PayPal announced it purchased San Francisco-based mobile
V12 Group Red Bank, NJ www.v12groupinc.com
application developer StackMob. Pivotal Payments announced plans to whitelabel its proprietary merchant portal.
SecureBuy is donating access to its Se-
cureBuy 2.0, 3-D Secure MPI to online retailers for the next 10 years. SecureNet announced that yubo has implemented its PayOS as its e-commerce transaction processing solution. Total Merchant Services acquired Registroid, one of the leading POS software downloads on Google Play. Tranzlogic is partnering with
TRANSACT 14: Powered by ETA Mandalay Bay Las Vegas, NV April 8-10, 2014
n
2014 ETA Strategic Leadership Forum The Breakers Palm Beach, FL October 7-9, 2014
n
Merchants’ Choice Payment Solutions to give over 50,000 merchants access to Tranzlogic’s transactional data analytics platform. TrustCommerce announced the latest update to PayWithIt is available on iTunes. VeriFone Systems deployed its VX 680 and VX 675 to facilitate the transition of Egypt’s gasoline and petroleum products’ retail market to an electronic payment system, and announced Moneris has selected its VX 520 device for electronic payments in 2014. TT Transaction trends | January/February 2014 7
FUTURE of the business
Brave New World in Payments
Tapping the power of Big Data in merchant portfolio management By Mike Strawhecker
I
n the novel Brave New World, A ldous Huxley wrote, “One believes things because one has been conditioned to believe them.” The same might be said of portfolio owners and managers who previously were limited by what they knew—what they believed to be true. But in today’s competitive landscape, we now have the power to act upon what is true. Big Data gives information to merchant acquirers that wasn’t available in the past. Several firms that serve the payments industry, including The Strawhecker Group (TSG), have been developing tools that give merchant portfolio owners and managers insight into the performance not only of their own portfolios, but of the portfolios of others in the market as well. These tools are Big Data breakthroughs, and they are reflective of the future of the business for a multitude of reasons, including the following:
1. Context. In an industry that has historically been close to the vest in regard to financial performance, the ability to see market rates has provided context to decision makers not seen before. For example, portfolio owners often claim F IGURE 1
Volume Gross Attrition -14%
-13%
-12%
-13%
Q3 2010 Q3 2011 Q3 2012 Q3 2013 Source: The Strawhecker Group database
their attrition is very low. The question is, relative to what? If you think you have market data to compare your portfolio against, how do you know that attrition was measured the same way? When calculating the metrics, it’s important to apply a consistent calculation using the data for each of the 18 data-contributing portfolios so all the performance measures are apples to apples. For example, Figure 1 shows that the average volume gross attrition in the U.S. market in Q3 2013 was –13 percent. 8 January/February 2014 | Transaction trends
2. Sample Size. The increasingly large sample sizes now available provide numerous portfolios the kind of market perspective that has previously been exclusive to the largest of acquiring players due to their sheer size. Regardless of a participating portfolio’s number of merchants within a certain merchant type or geography, the participants have insight into all segments of the U.S. market. In the past, portfolios would often rely on their salespeople to tell them how they were priced in the market, and typically it would be “too high.” Because of Big Data, the portfolios can see for themselves how they are priced versus the market. For example, Figure 2 shows the current rate that restaurants are paying for card processing (discount rate), the percentage of the transaction that makes up the ISOs’ net revenue, and the gross profit the ISO makes (net revenue minus residuals). In the restaurant segment, an ISO typically sees gross profit of 0.503 percent. 3. Microsegmenting. Microsegmenting describes what merchant acquiring companies are doing to make strategic decisions, taking a very granular and specific look at a FI G U R E 2
Restaurants in the U.S. Market (Q3 2013) Discount Rate 1.632% ISO Net Revenue
0.711%
ISO Gross Profit
0.503%
Source: The Strawhecker Group database
merchant type. Using the aforementioned example of restaurant pricing—while it is good information, it is not specific enough for a portfolio owner/manager to use to make decisions.Through Big Data, merchant acquirers can use inputs on various dimensions to make data-driven decisions. Let’s take a look at a specific example: • SIC code or merchant type: 5812 (eating places) • Tier or size of merchant: Tier 4 (card dollar volume between $1 million and $2 million a year) • Geography or location of merchant: New England • Sales model or what type of channel the account was sold through: Agent bank • Vintage or when the account was sold: 2013 Completing a database query on the following metrics produces output that is much more specific than the previous example given. As compared to the previous general restaurant example, this microsegment of merchants is priced
FI G URE 3
Eating Places / Tier 4 / New England/ Agent Bank / Sold in 2013 (Q3 ‘13)
Port. X
Avg.
Discount Rate
2.119%
2.337%
ISO Net Revenue
0.562%
0.467%
ISO Gross Profit
0.203%
0.196%
Source: The Strawhecker Group database
much higher (2.337 percent) and is less profitable (0.196 percent) than the general U.S. restaurant marketplace (see Figure 3). Each segment and microsegment is different. Big Data provides acquirers the ability to compare their merchant profitability and attrition performance to those of merchants in the database with similar demographics—size, geography, SIC, vintage, and more (see Portfolio X in Figure 3). Analyzing merchant performance metrics using Big Data often is a first step for ISOs constructing sales and re-pricing strategies. Merchant acquirers may have more success selling into various
markets—or deciding if they want to target them in the first place—if they are armed with the most apropos information possible.
4. Drivers of Value. Big Data offers merchant acquiring companies’ management, board of directors, and investors better insights into the value drivers of these companies than ever before. The Gross Profit Value Index Growth Bridge is an example of this type of analysis. The data in Figure 4 indicates that the collective merchant portfolio’s gross profit value has increased a total of 39 percent (1.00-1.39) from Q4 2010 to Q1 2013—a CAGR of +16 percent. An increase in residual payouts (–0.05) and slowing same store sales growth (–0.07) are the only factors creating incremental headwinds for the merchant portfolio’s value, according to the chart. These types of outputs show decision makers the value of a portfolio’s revenue stream and, therefore, help them better understand what areas of the business need to be prioritized and focused on with forward-looking strategies. 5. Access. Building on the theme from the previous point, timely access to relevant metrics from Big Data is key for portfolio owners and managers. Because of these developments in Big Data, many merchant acquiring companies have built in-house “data cubes” to better monitor and manage their portfolios’ performance in real time. This capability is paramount to understanding and acting on changes in the market—an agile company can be proactive in its tactics instead of reactive. Why has Big Data started to see big success in the merchant acquiring space? The answer is simple: data-driven decision making. Let’s say for the sake of argument that the average merchant produces $1,032 of gross profit annually. If a merchant acquirer can sell or retain 100 merchants in one year because of its Big Data efforts—either internally or outsourced—the Big Data created or saved more than $100,000 of new revenue. This is often enough ROI for even the smallest of ISOs to consider a Big Data solution. TT Mike Strawhecker is vice president of The Strawhecker Group and director of TSG Metrics. Reach him at mikes@ thestrawgroup.com.
F I GU RE 4
TSG GPVI Growth Bridge (Movement in index from key metrics) 1.00
Beginning GPVI
+0.11
+0.06
Change in Active Accounts
Change in Average Annual Volume/ Account
Q4 2010
+0.07
-0.05
Change in Total Net Revenue
Change in Residuals
+0.09
Change in Volume Gross Attrition
+0.19
-0.07
Change in Retained Account Volume Growth
Change in New Accounts Added
+1.39
Ending GPVI
Q1 2013
Source: The Strawhecker Group database
Transaction trends | January/February 2014 9
[ COVER STORY ]
Playbook for the
future
Veterans from across the industry reveal their strategies for adapting to the times By John Manasso
M
erchant Warehouse CEO Henry Helgeson, ETA CPP, maintains a database of 191 cutting-edge technology companies and potential strategic partners whose work, he
believes, could impact the future of the payments industry. The contacts in the database are so valued that Helgeson or a staff member periodically travels to meet with each of them, and he hired James Foster from PayPal as senior director of platform partnerships to oversee them. 10 January/February 2014 | Transaction trends
KEY NOTES 8 In a time of rapid change, continuing education and networking are key to anticipating and capitalizing on trends.
8 Big industry players are leveraging their considerable resources to create new technologies in house or to fund M&A activity.
8 Stiff new competition has directed the ISO value proposition away from simply pricing.
With the dizzying pace of change in the payments industry, Helgeson’s method is one way that a large acquirer like his can keep abreast of the latest trends and technologies.“If you don’t already have a plan and you’re starting to execute on that plan, the next 12 to 24 months [could] be very painful,” he says.“There’s going to be a lot of consolidation in this industry right now. I don’t know if 1,200 ISOs is a sustainable number—in fact, I know it’s not a sustainable number in the U.S. and I think this is going to accelerate some of that consolidation in the next three years.” While Helgeson’s strategy sounds as if it will prove a success, it might not be one that every legacy company in the industry can follow. For example, how can a smaller company, say, one without the 325 employees or the resources of a Merchant Warehouse, develop its own strategy that will help it through such a rapidly evolving time?
Learning Quickly George Peabody has an answer: education. As senior director at the industry consulting firm Glenbrook Partners, he offers a variety of ideas that might not require adding staff or a beefed-up travel budget. Continuing education, in its various forms, and good old-fashioned networking rank among them. “The pace of change in this industry is accelerating faster and will [continue to do so] for the next five years, more than it has in the past 20,” he says. “It’s more of a challenge than ever. There is need for continuing education, particularly around important topics like mobile, like the role of data in commerce, and that can take multiple forms. Obviously, there is a lot of material out there on the Web, and all the vendors in the world are happy to talk to you.” ETA offers numerous programs in continuing education, including webinars. Along with the Certified Payments Professional Program, ETA also offers cutting-edge courses at its annual conference. This year, the conference, set for Las Vegas in April, has been revamped and re-branded as TRANSACT 14. ETA will offer 11 sessions in seven topic areas: compliance, risk, fraud, and security; mobile and technology; investment; international; merchant; policy (including new or proposed legislation and regulation); and sales. Non-attendees can purchase recordings of the sessions. TRANSACT 14 will have two panel discussions involving the CEOs of the top 10 largest acquirers and processors, who will discuss what keeps them awake at night. Rori Ferensic, ETA’s director of education and professional development, says when she works with ETA committees to plan the content for these events, she has told committee members that she has struggled at times to get her arms around industry changes—even after working for six years at ETA. She says committee members have told Transaction trends | January/February 2014 11
[ COVER STORY ] her, “We can’t either, Rori”—all of which reinforces the need for education. “It really is important for the traditional players because they’re going to have to change their business models or partner with new companies,” Ferensic says. “These new companies—these 20-yearolds in their garage developing mobile apps—know nothing about the payments side and the standards they might have to follow. Really, there’s a lot of information that’s really important to everyone…. It’s really important to get a handle.”
down from C-level executives to the lowest member of the chain. “There are [challenges], there definitely are,” says Dom Morea, First Data senior vice president of advanced solutions and innovation.“[It’s important for us to] help our salespeople really understand where the market’s going,” to help them qualify,
“It’s not enough to sit back and read a couple of white papers. For acquirers, you really have to get out there and be a part of that conversation and understand what’s happening... If you’re reading about it, sometimes it’s not on the cutting edge.” —Henry Helgeson, ETA CPP, Merchant Warehouse
Anticipating Trends Merchants need to be increasingly thoughtful about the devices they’re installing, says Peabody. In particular, they should be thinking about the timelines for liability shifts and consumer adoption of NFC and Cloud-based wallets. “Knowing all that, you have to decide what kind of infrastructure to put in place,” he says, “and to make those decisions, you have to be aware of all those moving parts.” One example of anticipating where the customer is going is VeriFone’s Way2ride app. The company has worked with cabs in New York City to install POS technology in taxis so that customers with the app can pay with a tap of their phone. “It’s a wonderful way to pay and an example of where we have removed friction from the system,” says Erik Vlugt, vice president of product marketing for VeriFone. By removing friction, payments professionals mean making the transaction simpler; the idea being that mobile apps are faster and easier for consumers to use than a card swipe on a POS system. For the smaller company trying to pick up on the trends, Peabody says no single website can provide all of the news and information needed to remain current. He visits dozens each day. He has a co-worker who gleans a list of newsworthy stories based on scanning hundreds of feeds, and he suggests those in the industry should do the same. He also recommends CEOs establish a network of industry contacts and constantly ask,“What do you see?” Armed with an understanding of current trends, organizations then have to put that information into action through a variety of means. For the largest companies, this can mean having to get the message
Bank of America Merchant Services. The entity is operated as an independent company with its own management committee, CEO, and board. The venture leverages the combined assets of its parents, Morea explains. He puts it this way: Bank of America brings its thousands of branches and the rela-
understand, and anticipate the kinds of solutions that small, medium, and large merchants need.
Tapping M&A, Joint Ventures A top-of-the-food-chain industry player like First Data uses a variety of strategies to stay ahead of the curve. For one, it deploys its own considerable resources— in terms of programmers and developers—to create its own new technologies. However, it also engages in mergers and acquisitions: gobbling up some of those startup technology companies that are in the vanguard. Last October, First Data acquired Perka, “a provider of a smart loyalty program.” That same month, it also acquired Clover, a POS solution company. Media reports on the acquisition regarding the price that First Data paid for Clover ranged between $34 and $56 million. For a corporation to make such a substantial investment in new technology pay off, sales staff and employees must not only understand the new services but also offer those services to existing and potential customers. “Integrating and making those really simple and straightforward for our sales folks to understand and be able to use… to address customers’ needs is really, really important,” Morea says. Another way large players are adapting to the changing payments universe is through joint ventures. First Data has several significant partnerships, one of which is with Bank of America in the form of
12 January/February 2014 | Transaction trends
tionships those branches have with merchants—from small ones to large global brands—on its end, not to mention the financial services it offers those merchants. First Data brings the technology and payment processing capabilities of one of the industry’s largest players to the relationship. “So, it’s all really aimed at enabling merchants to accept payments and do a whole lot more, and helping them run their businesses profitably,” Morea says.
Adding Value In the current climate, banks have paid increasing attention to merchant services, as historically low interest rates have hurt their ability to generate profits. As banks turn to merchant services, however, they also face stiff competition from technology companies. “The competitive landscape is much different than it was years ago, where you had a bunch of banks [that offered up] their normal depository or lending relationship and naturally [bolted on] merchant services,” says Joe Pappano, senior vice president and general manager of Vantiv gaming solutions. Pappano says small technology companies have “leap-frogged” traditional financial institutions when it comes to merchant services.Those small technology companies—whether they’re offering mobile payments or loyalty programs—have harnessed Big Data to offer merchants an array of possibilities to increase revenues
and done an excellent job of promoting a “one-stop shop,” and that has put traditional acquirers on the defensive. Companies like Vantiv and First Data have adapted to the changing scene by, in a way, playing both sides of the equation. “One of the benefits of Vantiv is not only are we a merchant acquirer for 400,000 merchant locations, but we also have 1,350 financial institutions that have outsourced their debit gateway, their ATM driving card production, and card management systems. So we’re both an issuer and an acquirer,” Pappano explains. “We have access to all that data and analytics, and we have a good pulse on what’s happening on both sides of the equations. Banks? Definitely their value proposition is obviously threatened by the growth of the technology companies leading in that value proposition.” In this atmosphere, a dominant trend among ISOs from previous years has, to a degree, flipped. No longer is there a race to the bottom to provide the lowest price. Now, merchants are increasingly aware— or payments companies have to make them aware—that by using new technologies such as mobile payments, loyalty pro-
grams, and integrated POS and software systems, they can help merchants to increase their revenues. Sean Donovan, alliance partner program sales manager at Vantiv, says his family has owned an auto repair shop in Cincinnati for 52 years. For the 12 years he has worked at Vantiv, he has constantly fielded calls from family members, asking, “Is this a good deal on my pricing? Can I do better?” Recently, his family switched to a software program that helps them to manage the shop and allows customers to make online payments. The software integrates those payments into the shop’s accounts receivable system. “It’s an integrated processing experience,” Donovan says. “I think that’s something that even my family is willing to pay a premium for—having that integrated software approach that takes payments to kind of a whole different level is very important, and I think pricing is not as much of a hot topic at it used to be.”
now. Helgeson, of Merchant Warehouse, says he thinks it is “almost vertical.” “It’s not enough to sit back and read a couple of white papers,” Helgeson says. “For acquirers, you really have to get out there and be a part of that conversation and understand what’s happening. A lot of these companies are not putting forward what their actual plans are in the media. A lot of that is still behind the curtain. If you’re reading about it, sometimes it’s not on the cutting edge.” All of which lends credence to the importance of networking—no matter who you are. The truth is that no single approach will provide the answer at such a time of flux. “The right choices are only going to be made on an individual-entity basis,” Peabody says. “You can’t cookie-cutter it as readily as you could before, and so education and networking and the right help will help keep you out of trouble.” And that is where everyone seeks to be. TT
Getting Out There
John Manasso is a contributing writer to Transaction Trends. Reach him at john_manasso@yahoo.com.
No matter what role one plays in the industry, the learning curve is immense right
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[ FEATURE ]
“L”
Putting the in M-Commerce At the 2013 Strategic Leadership Forum, industry leaders gathered to discuss the role of loyalty in mobile commerce
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ach year, the ETA Technology Committee convenes a group of thought leaders to participate in a roundtable discussion at the annual Strategic Leadership Forum.This year, the conversation took place in Scottsdale, Arizona, and focused on mobile commerce and loyalty. In this Transactions Trends exclusive, we’ll share these experts’ insight and expertise on merchant adoption, consumer enrollment, and the impact of social media companies on the loyalty space. Participants included:
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Chris Lee, president, North American strategic partnerships and emerging markets, Moneris Solutions, and ETA Technology Committee chair
Jared Poulson, ETA CPP, managing partner, iTransact, and ETA Technology Committee member and panel moderator
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Tony Abruzzio, business development executive,
14 January/February 2014 | Transaction trends
Isis, and former chair of ETA Technology Committee n n
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Bill Clark, CEO, Spindle Inc. Scott Goldthwaite, senior vice president of operations, ROAM, and ETA Technology Committee member Jeff Mankoff, founder and chief executive officer, vPromos Inc., and ETA Technology Committee member
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Jed Rice, senior vice president of business development, Paydiant Carmen Paraschiv, consultant, client delivery for North America, First Data; president, Stand by Me; and ETA Technology Committee member Excerpts of this discussion follow.
MODERATOR: In your minds, why does a merchant need loyalty?
JEFF MANKOFF: Merchants need loyalty because they need to know who their customers are. If you’re going to advertise, you’ve got two choices. You could advertise to your existing customer base, or you can try to acquire new customers. And, we all know it’s expensive and difficult to acquire new customers. If you have a limited budget, your best opportunity is going to market to your existing customer base. If you have a loyalty program, you have an opportunity to identify your customers. Most merchants don’t know who their customers are. A loyalty program gives a merchant an opportunity to have a means to communicate with its customers, an email address or a text message.With a loyalty program, you have the opportunity to engage your customers on a regular basis, which will drive repeat business. TONY ABRUZZIO: Merchants need loyalty programs to satisfy their customers. We believe that consumers like to have discounts. They enjoy getting a good deal and feel like they’re empowered. It helps keep them coming back. For example, I like to fly Delta, and I definitely will always pick Delta because I’m a member of their loyalty program and I like to get free flights. JED RICE: In mobile, we’re actually seeing the ability to drive very specific customer behavior by using loyalty credentials or loyalty currency—for example, giving extra loyalty credits for coming in during a down time. It’s not just knowing the customer but rewarding the customer.They’re actually driving specific customer behavior. Instead of giving a discount, they’re giving an indirect sort of gamification and rewarding somebody for doing something they may not normally be doing. BILL CLARK: A loyalty program gives you membership in that merchant location, which incents customers to come back to get free merchandise. The Aite Group did a study and said that the number one item on merchants’ agendas is retention. And, I think a loyalty program is one very good tool for helping with retention. It reduces the cost of having to attract new customers because you keep the ones you have. We’re focused on helping merchants actually drive the incentives out to the customer. SCOTT GOLDTHWAITE: Merchants want loyal customers. They don’t necessarily need the loyalty program. Merchants that are providing an amazing product and service will have loyal customers with or without a loyalty program. But, in addition to having a great product or service, merchants can attract and retain clients by having loyalty programs that incentivize that behavior. The key thing for
a merchant is how to balance that out. If I have a great product or service and people are paying market price for it, can I keep the customers loyal, based on that, or do I need an added expense by providing a discount or an incentive to get those customers in? Would they have bought my product or service at full price or would they only be coming in based on the coupon? And, how does that drive the behavior, positive or negatively?
MODERATOR: I think merchants need loyalty, as well. But, the fact is that, even though there’s that need, not all merchants have loyalty programs. What is it that keeps a merchant from adopting a suitable program? MANKOFF: It’s too hard for small merchants to start a loyalty program. Most of the Fortune 500 companies have a loyalty program and they see the benefits of it. If you’re a small restaurant, you’re focused on getting food on your customer’s table. You’re just running the business and you’re not a marketing person. That’s one of the biggest
Jed Rice, Paydiant
“In mobile, we’re actually seeing the ability to drive very specific customer behavior by using loyalty credentials or loyalty currency—for example, giving extra loyalty credits for coming in during a down time. It’s not just knowing the customer but rewarding the customer.” problems. Merchants know they need to go out there and acquire customers. But a loyalty program is perceived to be too hard. I mean, I’ve got to go get the punch cards. And, I ran out of the punch cards. And, if you want to do it electronically, now you’re talking about something that’s really complicated. It’s got to be a turnkey, easy solution. If it’s hard, it’s not going to happen.
MODERATOR: Other reasons why merchants would be reluctant to adopt? CLARK: Administratively, it can be difficult to manage. But I think there is a difference between a standard loyalty program and a promotional program that might bring Transaction trends | January/February 2014 15
[ FEATURE ] new business in at off hours, and I think what we’re all moving to now are the kinds of marketing loyalty programs where we can add a little more value. It’s not just replacing a punch card with a mobile wallet. It is a way to let a customer know that there is an offer or a table available at 3 p.m. at maybe 50 percent off, which might go to repeat customers, but bring them in at different times of the day. I think loyalty, marketing, couponing, offers, etc., are now being put into one single bucket. Now, there’s more value for the merchant. I’m thinking of it as phase two of what we all think of as traditional loyalty. But, it’s certainly something very real, and something very possible now with the mobile environment.
Scott Goldthwaite, ROAM
“...If we’re not providing, as an industry, simple, easy-to-use solutions, then I think it’s a disservice. ...Being able to provide something that gives merchants multiple ways of generating new customers, and helps merchants drive revenue from existing ones in a simple, affordable way [is the key].” MANKOFF: Every POS system has some sort of a loyalty system built into it, either tracking with a mobile phone number or they can add some sort of a third-party loyalty card. But, again, the problem is that’s just too hard for merchants to set up and to start. They need somebody to hold their hand with regard to setting up the program, and determining how many punches and what the reward amount could be. With regard to couponing and the promotions, what we’re seeing with small merchants is that they really don’t have the time to create the promotional offers and deliver them, even when they have slow times. Delivering the offers, even to existing customers, is something that needs to be done days, weeks in advance, even with an automated system. It’s a good idea, but it’s difficult to implement. GOLDTHWAITE: Jeff, about your comment about merchants not having the time, it’s a very interesting dichotomy. A lot of our customers are deploying mobile solutions out 16 January/February 2014 | Transaction trends
to that tier 5, tier 4 marketplace.When I see our products in action, I can chat with merchants about them, and it’s interesting because these smaller merchants, on the one hand, they’re entrepreneurs and they’re starting a business. On the other hand, they don’t spend a lot of time on the growing part of their business.They seem to spend a lot of their time focused on the operational aspect of their business. And, it seems like a dichotomy because, how can you be an entrepreneur, but then be focused on just the operational aspect of your business? I think what merchants are saying when they don’t have enough time is they don’t understand really what the impact is on a real lead generation or customer acquisition program, and how that benefits them. And, that needs to be wrapped together, not just with loyalty, but with social media and e-commerce. But, if we’re not providing, as an industry, simple, easy-to-use solutions, then I think it’s a disservice. And, I think that’s the key, being able to provide something that gives merchants multiple ways of generating new customers, and helps merchants drive revenue from existing ones in a simple, affordable way.
RICE: Take Belly or Level Up. Effectively, that’s what they’re trying to do. They’re trying to create a loyalty program for a small merchant that’s effective and fairly simple.They can bring consumers in, because they have a consumer acquisition strategy on the mobile side of it. And, it’s effective for that very small merchant case.What they give up is the Belly loyalty program, or it’s the Level Up loyalty program. MANKOFF: It’s not merchant centric. RICE: No, right, it’s Level Up centric, or Belly centric. And, that’s good for them. But, it’s not necessarily good for the merchant. Merchants use Belly and Level Up, and they like it because they do see people using it and they can give points to somebody who comes in frequently and uses it. But, it’s not brand reinforcing. It’s none of those types of things. And, there will be solutions that come up that are just going to be tradeoffs, I think, for the small merchants. MODERATOR: What is your company doing to solve the problem of merchants’ reluctance to adopt a loyalty program? RICE: We serve three constituents—banks that issue their own wallets and their own mobile experience, regional and national retailers, and small merchants. In terms of large retailers and the regional ones, they already have some sort of a loyalty program in place. And, our role is not to replace that or come up with something new; it’s only to mobile enhance it. The idea that I have a plastic swipe card that, when I go in and make a purchase, I can then swipe it or get a punch ticket to get some points, that’s already a system of record that’s up in place. It could have already millions of
users, in some cases. All we’re going to do is create a very enhanced mobile experience around that existing platform. Instead of just being point based, it can be things like when you come in for breakfast—when it’s raining. I mean, in the mobile environment, you can actually date, time stamp, and location tag a transaction, and use Zip plus five NOOA data to say it is raining at this particular transaction.You can actually reward somebody that way. Banks want to be a financial management tool. It’s how do you actually give me, as a Bank of America customer, the one place to manage all of my loyalty platforms, so that I can put my Subway loyalty card, my McDonalds Arch card, my Walgreens card, and my CVS card in, so that, when I do that transaction, the hand shake automatically occurs, and I get my Bank of America loyalty points, but I also get the appropriate retailer ones. And, in those cases, those are existing platforms that you aggregate. For small businesses, there is an ability to have a very rudimentary loyalty program that you can, once you start seeing these wallets transact, you start seeing the transactions occur. Because, they’re known users, you can actually feed that back into a small merchant loyalty platform.They’re not going to have their own brand experience. They’re not going to have their own brand wallet. But, if you can give them data that says these are the customers that are coming in and when they’re coming in, that’s really valuable for them. Someone who has a five-chain pizza shop is likely not going to have their own brand of mobile experience, but if you can give them the data to be able to communicate with that user, that’s very valuable to have. In mobile, it’s got to be more than a replacement card. It has to be a tremendous amount of value added to the entire transaction experience. Because you have this computing device that is really powerful and, if you create a really intelligent user interface around it, it can be very helpful.
ABRUZZIO: At Isis, we’re offering merchants like Coca-Cola a way to access more consumers, and to ease the adoption of consumers. For example, if a consumer “Favorites” CocaCola in our wallet, that allows us to send them an email inviting them to join the My Coke Rewards rewards program. Initially, the first thing they get from Coke is a message that says your first three Cokes are free.They can go to participating Isis-enabled Coke machines, and tap to pay with their Isis mobile wallet and that Coke is going to be free. When they buy a Coke, they’re going to automatically have the My Coke Rewards loyalty points added to their account. And, when they buy their X number of Cokes—boom, it says on the screen, do you want this one free, or do you want to accumulate the points? Coke is very, very happy with the uptake, in terms of consumers, and the use of the loyalty program. We’re giving the merchant access to a seamless way to get new consumers into their loyalty program, so they can deepen the relationship and access more customers.
Bill Clark, Spindle
“I think loyalty, marketing, couponing, offers, etc., are now being put into one single bucket. Now, there’s more value for the merchant.” MANKOFF: vPromos links loyalty to the customer’s existing credit card. And, what that means in the way our process works is the consumer goes to the store and hands their credit card to the cashier. The cashier swipes the card as normal. If the customer is already in the program, they’ll earn their points or their punches. The POS prints out the receipt, which shows points or punches, in real time. Realtime tracking and redemption is new in the card link space, compared to doing it batch at the end of the day. As I said, because it is real time, the receipt shows the punches or points that are earned. A text message is delivered or an email is delivered to the customer, thanking them for shopping at the store. And, then, what happens during the course of the month, the goal is to get that customer to come back that one extra time. We’re a marketing company, as well, in the sense that we’re sending messages to the consumer that they’ve opted in to receive, like,“Come on back and get $5 off your next visit.” Every reminder gets the brand in front of the consumer. Once they complete their 10 punches or whatever it is, they’ve got the reward for $5 off. This reward is merchant centric, in that the reward can only be redeemed at that same merchant, which drives another visit back to the merchant. The consumer goes back, he hands his credit card to the cashier, and, after he pays his bill—say $17—the receipt shows in real time $17, minus $5 reward, and balance of $12. And, he gets an email message in seconds, thanking him as well. What we’ve done is create a true, seamless experience, using technology that’s already out in the marketplace. Everybody pays with credit cards. vPromos Loyalty solution is installed in the terminals and POS systems merchants are using today. And, then, if you’re not paying with credit cards, you’re using cash. And, our system tracks cash with the customer’s mobile phone number, which is not as sexy, of course, as tracking loyalty with a debit or credit card, but it works. The key for loyalty is to deliver a solution to 100 percent of the customer base of that merchant, without that Transaction trends | January/February 2014 17
[ FEATURE ] customer being required to download an app or something like that.We are trying to make it real easy. The vision is that we’ll work with all types of form factors—be it NFC, mobile wallets, or a credit card.
CLARK: We have a product we call Me Network. It is really a mobile marketing and advertising loyalty platform. It was designed for small merchants to use to have a dialogue with consumers through a mobile app. We have about 400,000 users of the app. We have about 6,000 merchants on the platform in 85 cities today. But our focus isn’t so much the payment side—mobility is clearly what’s driving the issue— but it’s a way of helping the smaller merchant solve the very problem that we talked about at the beginning, which is how do they start to drive more coupons and offers and a
Jeff Mankoff, vPromos
“We’re in the Wild West right now with regard to the opportunity to sign up merchants and to power their card-linked loyalty programs. The logical place to start is going to be loyalty. … Only after the merchant has its card-linked loyalty program in place should the merchant go out there and use these new card-linked marketing networks like Bing and Living Social and Facebook to acquire new customers.” loyalty program out to their constituencies or their customers, and to do it in a very cost-effective manner. We have a platform that’s billed on the high end, $49 a month, and it includes all those components, including the mobile app. And, we’ve started working now with companies beyond that, like True Effects, that do first-party marketing. Some of the card-linked offers, through edo, try to push content now that comes from these smaller merchants into a more general type of an environment. We’re all about helping small merchants by offering similar things as the big merchants. On a recent panel, we had the Quiznos guy out there talking about his great program, which is super. I mean, they do a very good job. But, how do the smaller mom and pop restaurants do things that are 18 January/February 2014 | Transaction trends
similar to what a Quiznos can do? And, that’s where we’re trying to really position our platform.
GOLDTHWAITE: ROAM’s role in this ecosystem of mobile and payments is the technology provider. We provide technology for very large enterprises. Merchants, large and small, can add payments to their mobile applications for their mobile sales force.We provide technologies to financial institutions so they can deliver mobile payment applications out to their merchant base. As technology provider, our role is to make our platform easy and flexible, so that our two types of customers that are distinct and unique, so they can add really cool things, like mobile, like loyalty, like payments, but make that process very simple at the point of sale. And, we partner with a lot of the people in the space to do that. And, we’re very amazed at how some of our partners can take our technology, other people’s technology, combine all this together, and come up with some amazing mobile payment apps that really help the merchant at the point of sale. I think throughout the next year, by the time [TRANSACT] comes around, we’re going to see not just things like Quiznos and some others.You’re going to see a lot of amazing applications out there, because the rate of change, the tool sets are available now to do that. And, we’re seeing large enterprises really tackle this space and come up with some amazing applications. There’s a lot of unique apps coming, and I’m sure we’ll talk about them at [TRANSACT]. MODERATOR: What do you see as the barriers to consumers joining loyalty programs? And, what is your company doing to help those consumers overcome those hurdles? GOLDTHWAITE: The consumer behavior aspect of this is one of the most important. If consumers don’t adopt something, then all the technology in the world is not going to help the situation. Understanding consumer behavior in these individual market segments is really important. You don’t see consumers signing up for 100, 200 different types of loyalty programs.They’re going to sign up for places that they shop, places that they eat, and brands that they like. Customers are going to interact with merchants that they’re going to get a valued product and service. If the customer doesn’t like the product or service, they’re not coming back anyway. It doesn’t matter how good the loyalty program is. I really think that first step of the barrier is having the merchants develop really great products and services where loyalty is just layered on top of that, but not in lieu of that. CLARK: I don’t think that consumers are reluctant at all to join a loyalty program. It may be more that they’re not aware that they’re available, or they have a hard time managing them, or they lose the punch cards, or whatever the case might be. A mobile phone makes that easier, potentially.The
technology is usually in advance of the market problem we’re trying to solve. We are trying to leverage the technology to solve the business issues, to get the word out, to get consumers to use it, to get merchants to upgrade. There are all kinds of things that really impact that. But, I’m not sure that we have a consumer problem. It may just simply be an awareness issue.
MANKOFF: There is an enrollment issue, if you’re doing card-linked offers. And, we had to solve that problem. In the old days, what the card-linked companies did to deliver their merchants’ offers was to partner with the credit card issuing bank. This was really a loyalty program for the credit card issuing bank as opposed to a loyalty program for the merchant. If you’re a merchant and want your loyalty program to be about your brand, how do you get consumers to enroll their credit card? To get customers to go online and to register their credit card for your little store is very hard to do.There are problems with apps. For small merchants, getting consumers to download the apps is hard to do to participate in a loyalty program. We knew we had to come up with a solution that made it really easy and seamless to enroll the customer. We have what we call registration at the point of sale. When the customer hands their credit card to the cashier, the cashier swipes it through the terminal. The card is converted to a token and comes up to the Cloud and over to vPromos. We can see whether or not Jed is in the program. If Jed is not in the program, we send a message back to the terminal, prompting the cashier to invite the customer to join. It’s a simple question: Would you like to join our reward program? All I need is your mobile phone number, one time. And, the mobile phone number is inputted into the terminal and the customer is enrolled. Jed does not have to download an app. He never has to go enter his credit card number online. What we’ve just done is we’ve linked that customer’s credit card with his mobile phone number or email, with the merchants reward program. This is the Holy Grail, I think, in this loyalty space. The old days of simply collecting an email address for a consumer are done. Now, the Holy Grail is to be able to automatically track loyalty with the customer’s preferred payment system, which is linked to a means of communication for engagement purposes. Also, by linking the customer’s loyalty with his payment system, we are collecting great data. That’s how we solved the enrollment problem. And it’s working really well. We’re seeing cashiers, when properly motivated, enrolling customers at a very high volume. MODERATOR: How do you see the big players and/or social media, Facebook, Amazon, and Google, affecting the loyalty payments space? Transaction trends | January/February 2014 19
[ FEATURE ] MANKOFF: We’re in the Wild West right now with regard to the opportunity to sign up merchants and to power their card-linked loyalty programs.The logical place to start is going to be loyalty. Loyalty should be the end game of this. Only after the merchant has its card-linked loyalty program in place should the merchant go out there and use these new card-linked marketing networks like Bing and Living Social and Facebook to acquire new customers. My vision is that the ISO that signs up the most merchants that can accept these card-linked offers is going to be very happy. Because they’re going to be looking at Facebook-type valuations and Google-type valuations, instead of ISO valuations. ABRUZZIO: I think of it as an opportunity. Because companies like Facebook know more about me than anybody. There’s an opportunity for them to monetize that information to merchants.When I look at my Facebook, the ads that I’m seeing on the side of my Facebook are all relevant to the things that I like. I think there’s an opportunity to really improve the relevancy in loyalty and offers for those big models like that. RICE: I think that those big players are trying to disintermediate the relationship between the brands, whether it’s a bank or a retailer, and the consumer. Smart retailers will use those guys as an outlet for targeting, to acquiring customers, so I can advertise next to your Facebook profile. But, I don’t think they’re going to let Facebook into the store to mine the transaction data. Because all of those advertising platforms, whether it’s a Foursquare, Google, Microsoft, they get paid based on their ability to generate churn. If they can get a consumer to move from one brand to another brand, they have delivered value to the acquired brand. And, I think there’s going to be a lot of resistance on most things. I think they’re fine using those big brand names as distribution points for their own message. I don’t think they’re going to allow them into the store and be part of the transaction flow. GOLDTHWAITE: The good news is that all these players that we’re talking about are very good at marketing and understanding the consumer market. As they’re pouring money into this space to generate awareness, I think we’re going to remove one of the inhibitors to awareness and adoption. We won’t be able to say that consumers and merchants don’t know about this stuff because Facebook and Google and all these large players are going to be pouring tons of information out into both those channels. I think the bad news of that, there’s going to be a time, right now, and for some time, there will be so many different types of choices for merchants and consumers, it’s just going to be overwhelming. And, it will be a “deciding not to decide” type of an aspect until the choices become very clear. The good news, awareness will be there. The bad news 20 January/February 2014 | Transaction trends
Tony Abruzzio, Isis
“Merchants need loyalty programs to satisfy their customers. We believe that consumers like to have discounts. They enjoy getting a good deal and feel like they’re empowered.” is there’s going to be a ton of confusion for a little while. But, eventually, things will settle down and merchants will be able to have solutions that are easy, that are simple, but fit their business needs.
CLARK: There’s an interesting market dynamic when the big guys enter. They chase the big merchants, and it really becomes kind of a top down approach to get relevancy with your particular program. That leaves the smaller guys waiting and wanting. One of the strategies we have is, while we’re aggregating payments for the small guys, we’re also aggregating mobile marketing advertising and loyalty, as well. What we’re trying to do is help the small merchants be able to participate in the bigger programs with the bigger guys, and do it through a common platform.This way, we’re doing a little bit of a bottom up, where the bigger guys would tend to take a top down type of an approach. It’s a very fractured market. I think it will stay fractured for a period of time until someone emerges as a leader. We’re just hoping to be a participant in the overall ecosystem, connect the dots, and have the right partnerships in place, and really be a friend of the smaller merchant and help them be relevant in the space. Why not have the local pizza store have the same kind of reach that a Quiznos might in a local market? I think that gap will probably get a little bit wider in the short run. And, we’re working very hard to keep that gap closed, but it’s an interesting market, for sure. MODERATOR: I think it’s a great opportunity. Fifteen or 20 years ago, it was a Wild, Wild West for payments, from an ISO perspective. And, it seems that history is tending to repeat itself here. From an ISO’s perspective, we have an opportunity to bring some clarity in the Wild, Wild West of mobile loyalty, helping them understand the reasons why they want to adopt a loyalty program. And help merchants choose a suitable program for them and for their consumers. And, it’s exciting to hear what your companies are doing to overcome those barriers with both merchants and consumers. TT
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Startup Stories: @Pay
Click and Buy A poor online shopping experience sparks an epiphany to streamline mobile payments By John Manasso
J
ohn Killoran thought he would practice environmental law—then he visited East Africa. “When I came back from Africa, [I realized] there was no way I was going to be a lawyer,” says Killoran, who received his law degree from Widener University in Wilmington, Delaware, and also has a master’s degree in philosophy.“Life’s too short. There’s too much fun to be had.” So Killoran, a native of suburban Philadelphia, packed up his van and moved west to the Rocky Mountains. He eventually settled in Albuquerque, New Mexico, where he worked as an environmental consultant. He began inventing automated information technology processes as they related to his work. Eventually, he opened his own professional services consulting firm, Clover Leaf. With 100 employees and $30 million in contracts with organizations, such as the U.S. Army, the U.S. Air Force, and DuPont, Clover Leaf has proved a success, to say the least. Part of the founding ethos of the firm is that it will take on any project that has a social benefit, but its services range widely and include IT. Fast-forward to Dec. 10, 2010: Killoran remembers the day with crystal clarity. He was trying to do some Christmas shopping for his family when he grew frustrated with his e-commerce experience. He felt he had to visit too many pages to complete a purchase and that his time was being wasted. With a self-professed knack for inventing, Killoran had an epiphany as to how to simplify e-commerce. He woke up in the middle of the night and ran downstairs to start a journal entry, which evolved into a spreadsheet and then a business plan. Before he knew it, the sun was rising. @Pay was born.
@Pay |
“So you’ve got that one shot in email. You can get your brand, you can get your product in front of people, and you need to be able to close the deal right there.” —John Killoran, @Pay and Clover Leaf
Growth on the Horizon Killoran remains the chairman of Clover Leaf but works fulltime at @Pay, where he is president and CEO. At the centerpiece of @Pay is its patented “Two-Click Email Checkout.” Presently, @Pay has between 15 and 20 merchants signed up, according to Killoran, but early this year, the company will announce a major deal. Killoran had a hard time not giving away the identity of the new partner, saying,“Their logo is probably in your wallet.” “This deal we’re signing is basically tied into 450,000 merchants and we’re still built for it,” he says.“One-in-four domestic Internet transactions is managed by this client.”
www.atpay.com
Albuquerque, New Mexico
President and CEO: John Killoran Employees: 30 Transaction trends | January/February 2014 21
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Startup Stories: @Pay
During the interview for this article, Killoran demonstrated the simplicity of the Two-Click Email Checkout. He sent an email with an offer to buy a pizza for $10.99 from a fictional restaurant, Riveria Pizza.The user clicks on the offer and receives a second email with a receipt that includes the date, description, restaurant, price, quantity, and total. If it were a real transaction, the pizza would arrive—hopefully—in 30 minutes or less.This example presupposes
WORDSTOTHEWISE � Hire the right people. @Pay President and CEO John Killoran believes in hiring smart people and then getting out of their way. Killoran quoted Socrates in saying that “the good is good because it’s good for you.” In terms of personnel, he believes in a “no obnoxious person” policy. For these reasons, he said his companies have rarely had human resources issues. “Hire smart people and treat them really well,” he says. “It makes for a really fun place to work. And support them in good times and bad, and it’s amazing… Bring managers up in your system and they see how they were treated, and they know how to treat people.” � Learn the payments industry inside and out—and don’t stop paying attention to what is new. “I’ve heard this at one of the ETA conferences and it struck me as true,” says Killoran. “We banged our heads up against the catacombs of the payments industry. It is a squirrelly network of moving money. If you’re getting into that business, you need to understand that network. You really need to understand the catacombs of the payments industry. If you don’t, there’s a brick flying through the universe that’s about to hit you. You don’t know it yet… It’s archaic… but if you don’t pay attention to that you’re going to find yourself saying, ‘Ouch.’” � Be faithful to your idea, says Matt Custer, Killoran’s business partner, a member of @Pay’s board of directors, and vice president of Clover Leaf. “There’s a million details you have to attend to on the administrative side but you also have to have a little bit of magic,” he says. “I think people have to be honest with themselves when they start a startup. Can they really do what’s needed to go through all of this? We’ve been doing it on the @Pay side for two-and-a-half years now, maybe three. Had we known what we were going to be faced with in the beginning, we might not have done it… We also had faith in the idea, as opposed to a desire to be successful with it. We had a number of other ideas where they just didn’t get off the ground, but we knew there was a reason it wasn’t going to work and you finally work through some of the bugs…. You have to have faith in that idea, too, that this is really something that somebody might use or that the industry could really adopt.” 22 January/February 2014 | Transaction trends
that the user has an account with @Pay, which keeps his or her card information on file. The technology is based on a concept that @Pay adopted from an analogous use, originally developed by Clover Leaf. In his career as an environmental consultant, Killoran says his company often contracted out for tedious worker safety and protection tasks, things that often only had to be performed once a month or once a quarter but were important to federal regulators, such as the Occupational Safety and Health Administration. In many cases, this task was a low priority for the employee, whose principal charge might have been security. The frustration proved great enough that Killoran decided his company would get out of this business—until a particularly bright friend, who also happened to be a former Rhodes Scholar, visited and offered up some wisdom on this topic. “Everybody hates databases,” Killoran says, summarizing his friend’s advice. “What everybody wants is things pushed at them so they can react... . Human beings are reactive individuals. We want to be proactive but we’re really not.” Thus began Killoran’s second epiphany. On a flight to Sacramento, Killoran realized that all of those tasks could be automated via email. Clover Leaf built a system that sent emails with what it called an “I Swear to God Button.” Each recipient’s email would include a task with a checklist. At the completion of the task, the recipient was asked to push the button in the email. The user would then receive a second email asking him or her to certify that the task outlined in the first email had been completed. After hitting the send button, the worker had completed the task and the information was delivered into the database. “It just took all the friction out of this really painful process,” says Killoran. Clover Leaf christened the system “AutoPilot” and marketed it with the tag line: “Put your entire management system on AutoPilot.” In the industry lingo, AutoPilot is a “no log-in, secure information management system,” meaning no password is required and the tasks are handled by email protocols. Roughly six months later, Killoran realized he could adapt AutoPilot to an online checkout system. But his and his team’s initial wild enthusiasm became somewhat muted when he learned the hard reality of just how complex the payments industry could be. “I knew what a credit card was,” quips Matt Custer, in reference to his depth of knowledge on the payments industry. Custer is a member of @Pay’s board of directors, vice president of Clover Leaf, and Killoran’s business partner. “I think we knew it was going to be complex but you have to start somewhere.You really have to start chipping away at understanding the industry. You learn by doing. I was pretty realistic about how long it was going to take and the effort it was going to take. The thing that more surprised me was the ability of our programming group to really solve any problem it was faced with because early on there were a lot of hiccups and areas where it really could fail, and they pretty much solved them.” Among the challenges that took a good deal of time was
getting the system to work on every email platform and with every Internet browser. @Pay’s first live transaction—for a food bank in New Mexico—took place in September 2011. It wasn’t until April 2013 that @Pay was able to create a fully automated solution. During those 19 months, @Pay worked out the bugs, for example when it learned the system did not work with Hotmail, on its smaller clients. In all, @Pay has more than 30 patents on the technology and has raised $4.5 million to develop it.
Empowering Consumers After working out those bugs, @Pay is now ready to work with larger clients. Killoran pointed out that 2.9 billion email addresses exist in the world, and he believes @Pay’s technology will empower people to use their email to make purchases. He cited several other statistics that he believes show how @Pay’s technology can be integral in the new marketplace. For example, in 2011, $68 billion was transacted via email. However, most of that came from individuals receiving email offers, then visiting a website, and using their desktop or laptop to conduct the transaction. In 2013, 70 percent of email was opened via smartphones.These days, the e-commerce experience does not translate to a mobile phone or device the same way it does on a laptop or desktop, Killoran says. He cited another statistic that once an email is opened on one device, a user only has a 2 percent chance of revisiting it from a separate device.
“You have to start somewhere. You really have to start chipping away at understanding the industry. You learn by doing.” —Matt Custer, Clover Leaf
“So you’ve got that one shot in email,” says Killoran.“You can get your brand, you can get your product in front of people, and you need to be able to close the deal right there.” TT John Manasso is a contributing writer to Transaction Trends. Reach him at john_manasso@yahoo.com.
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Transaction trends | January/February 2014 23
The Last Word
2014 Advocacy Outlook
This year, resolve to raise your voice on behalf of the industry By Jaime Graham
N
ever before in its history has the electronic payments industry had more reason than it does now to concentrate on the policy actions of legislators and regulators. Dodd-Frank Act amendments, mobile payments, and uniform breach notification as well as Federal Trade Commission (FTC) legal actions against payments processors and the threat of burdensome regulations are only part of the backdrop for the 2014 public policy stage.These industry issues and others have captured the attention of Congress and executive branch agencies. And this is simply a prelude to mid-term elections in November. Early 2014 offers a window of opportunity for payments industry issues to capture the legislative spotlight. As the premier industry advocate, ETA is poised to protect your business and voice your concerns on Capitol Hill.
Advocacy in the payments industry also will be front and center at TRANSACT 14. Effective advocacy requires building and maintaining relationships with key decision makers and their staff. ETA devotes significant time and energy to developing new and nurturing existing relationships on the Hill and in the executive agencies. In 2013, ETA led the charge in promoting a uniform national standard for breach notification, and relevant legislation is pending in both the Senate and the House. In 2014, ETA will continue to educate legislators and their staff on the flaws and challenges of complying with 46 different state laws rather than a single national standard. Innovation is the heart and soul of the payments industry, and the mobile payments sector is a prime example. ETA’s December 2013 Hill Day briefing for dozens of Capitol Hill staff on “How Mobile Payments Are Accelerating Commerce” laid the groundwork for further activity in 2014. Interest in this growing segment of the industry is high, and ETA is keeping it that way. Rep. Shelley Moore Capito (R-West Virginia), who attended the briefing, was especially excited about industry innovations and is planning a hearing on the topic in 2014. Burdensome regulations make it difficult to operate effectively and efficiently. Additionally, such regulations can interfere with the trust and respect among industry 24 January/February 2014 | Transaction trends
sectors as well as between the industry and consumers. ETA is on the alert to protect industry by opposing overreaching regulations as well as providing reasonable comments and testimony on relevant proposals. As the largest community of payments industry professionals, ETA members are a constituency that can make a difference. However, coalitions can add to the industry’s strength.
Amplify Your Voice Government affairs victories are not won in Washington, D.C., alone. Truly successful trade groups make significant use of other advocacy strategies such as grassroots, grass tops, and other district-based engagement as well as local media attention to industry issues. ETA’s Voice of Payments political engagement program provides the tools and information that make it easy for the industry to take action and make its voice heard. Payments industry businesses are a highly respected voice in the communities in which they operate, and their concerns should be heard by decision makers. ETA members provide tens of thousands of jobs and are headquartered in 46 out of 50 states. By using constituency-based advocacy, lawmakers learn about the industry directly from those citizens they represent. Advocacy in the payments industry also will be front and center at TRANSACT 14. This annual gathering of pre-eminent industry leaders and innovators will continue to offer the networking and business opportunities it always has. Now, it also will allow attendees to expand their knowledge about legislative and regulatory developments in Washington, D.C. Policy changes impact the operations and bottom line of the industry. T hose attending the April event will get a firsthand understanding of the policy issues being debated and learn how to be more effective advocates for the industry with programming as well as exhibit hall opportunities to participate. No longer can the latest innovations, enhancements, and progress in the growing payments industry be separated from the potential and actual government actions that impact the industry and its success. The industry via ETA, its members, and other aligned interests must diligently monitor, advocate, communicate, and act to protect the industry. TT Jaime Graham is senior manager of government relations for ETA. Reach her at jaime.graham@ electran.org.
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